Chart of the Week: Change in Total Debt vs Change in Exchange Rate

digGers it is common knowledge amongst all, big and small, here and abroad, that Jamaica land we love is a ‘Debt Ridden country. In a number of previous blogposts we have given you a in-depth expedition into the layers of the Jamaica’s Debt and her creditors.

Today we continue that learning expedition with our Chart of the Week: The Percentage Change of Total Debt vs (against) The Percentage Change of Exchange Rate. In keeping with our mission to give you consumable information (since we know there is a lot of confusing stuff out there), we have chosen to illustrate the relationship between total debt and the exchange rate using a simple line graph.

jamaica_total_debt_vs_exchange_rate_blog
Sources: Debt Management Unit, Bank of Jamaica

So lets begin with some observations:

1. Did you know that the external debt (US$) (debt owed to foreigners, or Jamaicans abroad) from January 2011 to May 2013 actually declined by US$165.28 Million?

2. Did you know that this same decline, when converted to J$, represents a whopping increase of J$99.6 Billion due to the depreciation of the J$ against the US$?!

3. Total debt (J$) has moved from J$1.53 Trillion in January 2011 to increase by 19% or J$300 Billion, to J$1.83 Trillion in May 2013.

4. It is important to note that total debt is made up of two components: external debt and domestic debt. However, before calculating total debt, external debt must be converted to J$ using the official Debt Management Unit exchange rate during the month being added to the domestic debt, in order to find the total amount owed.

5. We at diG want you to understand that for the period January 2011 to May 2013, our external debt has remained relatively constant.

6. At the same time our domestic debt (that is money owned to Jamaicans) has slightly increased but not by an alarming amount.

7. The real booster in the increase of our total debt is our depreciating dollar. From January 2011 to May 2013 diGgers the JMD dollar has depreciated by 16%.

8. As time has gone on, our debt has been increasingly correlated to the depreciation of the dollar, meaning that wherever the dollar goes, the debt goes.

9. From February 2011 to May 2013, the correlation was 29%. From January 2012 to May 2013, the correlation was 38%. From June 2012 to May 2013, the correlation had risen to 75% and although a very short period, from January 2013 to May 2013, the correlation was 84%.

The hope is that, diGgers, by reading this blog diGJamaica would have shared with you the important fact that Jamaica does not necessarily have an incessant borrowing problem, but it does have an exchange rate dilemma.

Jamaica’s reliance on US$ indexed debt and external debt is a bigger problem. As such, even if we never borrowed another dollar for an entire year we would still be unable to reduce the stock of debt, as our dollar continues to slide.